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Red hot startup Foursquare took social networking to a new level by offering geo-location services that allow users to notify their friends about where they are shopping, eating or drinking. In just one and a half years, the service has exploded in popularity. Foursquare and its geo-location-based mobile application now boasts over three million users and counting.

Such popularity hasn't gone unnoticed. On Thursday, Facebook launched a service called Facebook Places that will allow its 500 million users to "check in" at various locations and connect with friends. Facebook's entry into the space has some tech pundits wondering what will happen to the much-smaller Foursquare.

DailyFinance spoke with Foursquare CEO Dennis Crowley Sunday to discuss what he thinks about Facebook's launch of Facebook Places and his views on the state of mobile networking and geolocation services.

DailyFinance: How is Foursquare different from Facebook?

Dennis Crowley: I think the services are ultimately a little bit different. The example I've been using is if you look at the 140-word text box that Twitter asks you to write in and the box that Facebook asks you to write your status updates in, technically, they seem to be pretty similar, but everyone understands that the services are used for different things. They have a different audience and they provide a different functionality, and I think we kind of fit into that same kind of thing for now.

Foursquare is designed to enhance the way you experience the real world, by using the social graph, by using a lot of the content we're collecting from different check-ins, and the content that our users are creating around the tips and to-do functionality. So it's all about surfacing relevant things to do and experience when you're out in the world and that's a very specific user focus. And it's because the company was started with that focus, and that focus is in the DNA of the company, that the stuff that we ultimately end up creating is going to be different from the stuff that other folks create.

I think larger services can sometimes struggle when they try to do things that users didn't anticipate... [O]ne of the things that we have built into the service is... check-ins and tips and to-do lists and game mechanics and rewards and badges and mayor-ships. There's a level of fun and playfulness that has been built into the experience from the very beginning. I've seen other services try to turn on game mechanics and it doesn't feel real or it doesn't feel legitimate or it confuses the users or it doesn't feel like it belongs there. And I think we can do more creative things because that's what we've been doing with users all along.
DailyFinance: Does size matter? Facebook is huge, while you guys are just up-and-coming.
Dennis Crowley: A little bit -- it's tough. We struggled with this at Google, too. Taking Dodgeball and making it work for 100 million -- going from the 50,000 users we had at the time to 10 million people would have been very difficult, if not impossible, to pull off. Because when you target a large number of users like that there has to be a level of simplicity in the products.

We started off with a very complicated product, which was a design decision that we made. We wanted it to be about check-ins, places, game mechanics, tips and leaderboards. We wanted it to be those five elements, and that's a very complicated product. A lot of people said it would be too complicated to launch, and we stuck with it. And so those are the five elements that we're known for.

I've heard some of this feedback [about Facebook Places] already from folks where they're like 'Oh, I didn't realize I would be sharing [my location] with all of my friends.' Some of the behavior that's built into those things might be unexpected, because people are already used to those services and suddenly the services are used for something else.

DailyFinance:What's the nature of the relationship between Foursquare and Facebook and Facebook Places? [A Foursquare rep joined the Places announcement.]
Dennis Crowley: They asked us to be a launch partner and so we had an initial look at the API [Application Programming Interface] earlier than some other folks did. There's no contract or formal agreement. It's just 'Hey, we're both doing check-in stuff, you're doing check-in stuff, we both have API's; potentially there's a way we can work together.'"

DailyFinance: So you have a good relationship with Facebook?

Dennis Crowley: I think ultimately their interest in the space is good for us because it validates what we're doing, and it's also educating a large number of users about check-in services and location-based services. It's difficult for us to go out and teach all of this stuff to folks with a team as small as we have and because we have such a limited reach.

Now, this stuff is getting built into the fabric of everything. Remember how difficult it was for Twitter to explain itself to people at first? Now people just take it for granted that everyone knows what a status update is. Fast forward six months and everyone's going to know what a check-in is because of services like Foursquare and because larger players like Facebook are pushing the same stuff.
DailyFinance:Facebook just acquired Hot Potato, another location-based startup. Do you know them?

Dennis Crowley: We're friends with those guys in New York and they were trying to do interesting stuff around check-ins too, a variety of places, as well as events and TV shows and all sorts of other things. I know Justin [Shaffer, founder and CEO of Hot Potato] and the team pretty well and I feel good for them.
DailyFinance: Rumor has it you turned down $120 million from Yahoo and $125 million from Facebook. Do you have any regrets about not selling Foursquare?

Dennis Crowley: No, not at all. We're psyched to be in this position. We hired five people in the last week. We've got a good amount cash in the bank. We just got new office space. And now the [geolocation] space is certainly heating up. We could't be in a better position.

DailyFinance: What does the rise of geolocation services mean for the average consumer?

Dennis Crowley: There is going be a lot more experimentation in the space. I think when we launched a year and a half ago we kicked off a second generation or a second wave of mobile social products.

DailyFinance: What was the first wave?

Dennis Crowley: I think Dodgeball [Crowley's first startup, which he sold to Google (GOOG); Google later shut it down], Loopt, and Google Latitude. And that was tough, because we were all doing these check-in services, but we couldn't really explain the value to users. So our approach was, we'll do one-player value by making it into a game, and then hopefully we'll do social value by leveraging the social graph, and then we'll do merchant value by getting the local merchants involved.

There's a critical mass of people who now have GPS and maps and smart phones and they know how to download and use apps so you're just seeing a whole lot more experimentation. And so it's good. Startups have made more headway in the last year and a half in this space than previous generations have done in two or three different years.

DailyFinance: What does the rise of geolocation services mean for businesses and retailers?

Dennis Crowley: They have a new whole suite of tools that they can now use to reach out to their best customers and potential costumers. And we're one of the companies that's leading a lot of the thinking on that. Like, 'Hey let's makes dashboards for venues that let them interact with their best customers.' That's a big idea and that's something that wasn't around a year ago.

DailyFinance: What should we be looking for from Foursquare in the near future?

Dennis Crowley: We've got a new iPhone client that's rolling out in the week after next week if not next. Refreshes to the other two clients, the Blackberry and Android stuff. Big relaunch on tips and to-dos and aggregating that information. The big thing for us internally is moving into this new space. We now have the flexibility to hire people to build the stuff we want to build. And we're still growing like a weed. The Facebook stuff launched and people were like, 'Oh my God, Facebook is gonna eat Foursquare, and we've had our four biggest days in a row ever.

DailyFinance: What was up with that spike?

Dennis Crowley: Well, we had a big writeup in the New York Times. It was an article about the interesting battles for mayorships that go on all over the place. Whenever we get a good press like that we get a spike. But I really think this is just the beginning -- people are now watching the space a little bit closer. When people talk about Facebook they're now talking about Foursquare. It's just what we predicted, and it's only a good thing for us because Facebook is really bringing us a lot more exposure.

The terminology used to describe this service/application just makes one feel that it is all double talk. It would be helpful to have the features of this service explained clearly for those of us that are not on the cutting edge of cyber development.